Edel Marie Magee & Ors v John Wade Crocker & Anor

A share transfer may be validly approved by conduct where the relevant articles do not prescribe a particular form of approval. A party who knowingly permits the transfer and registration of shares may be estopped from later insisting on strict compliance with pre-emption or consent provisions where reversal would be unconscionable.

A shareholders’ agreement may be novated when the continuing party agrees that a new shareholder will assume the former shareholder’s rights and obligations. Novation is assessed objectively and may be inferred where necessary to give business efficacy to the parties’ arrangements. A no-oral-variation clause does not ordinarily prevent novation, although contractual restrictions on assignment and waiver are relevant factors.

The claim concerned the transfer in 2014 of shares in Pedham Place Golf Centre Ltd from Camelot Trust Corporation Ltd, trustee of the Nisma Settlement, to the Fitzpatrick Family Discretionary Settlement. The claimants, trustees of the latter settlement, sought declarations that the transfer was valid and that a 2010 shareholders’ agreement remained binding between them and John Wade Crocker.

Mr Crocker counterclaimed that the transfer breached the company’s articles, was void, and had been procured by fraudulent misrepresentation. He also contended that the shareholders’ agreement had terminated when Camelot ceased to hold shares and could not bind the trustees, who were not original parties.

1. Fraudulent misrepresentation. The allegation that Mr Fitzpatrick represented that the Nisma Settlement was his family trust was not made out. The court found that Mr Murray had been treated as the settlor, but that Mr Fitzpatrick later exercised effective control and was likely to have treated the settlement as a family settlement. There was no operative representation made knowingly falsely or recklessly. The claim in deceit therefore failed.
2. Validity of the transfer. The Ordinary share transfer was not shown to have been preceded by a binding agreement requiring a Transfer Notice. In any event, Mr Crocker had agreed to the transfer, signed the relevant share certificates after seeing the transfer documents, and acquiesced in registration of the Fitzpatrick interests. That conduct supplied retrospective written consent for the Preference shares and engaged promissory estoppel and waiver. It would be unconscionable to rely on the articles’ formal requirements after giving the assurance on which the transaction proceeded.
3. Novation. The discussions objectively established that the Fitzpatrick interests would step into Camelot’s shoes under the 2010 shareholders’ agreement. Since the burden of the agreement could not be assigned, the arrangement was properly analysed as a novation. The original agreement was replaced by a new agreement on the same terms between Mr Crocker and the Fitzpatrick Trustees. Novation could be inferred because that conclusion was necessary to give business efficacy to the transfer and the parties’ subsequent conduct.
4. Contractual formalities. The no-oral-variation provision did not apply to a novation. The no-assignment provision, properly construed, concerned bilateral dealings with contractual rights and did not encompass the tripartite replacement of the agreement. Such provisions nevertheless required caution before inferring novation. On the facts, the necessary consent was established; alternatively, Mr Crocker had waived or was estopped from relying on the restriction.
5. The claimants were therefore entitled to declaratory relief confirming the validity and effectiveness of the transfer and the novation of the shareholders’ agreement. The counterclaim and Part 20 claims were dismissed.